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Impact of electricity price hikes & ArcelorMittal results: Nku Nyembezi-Heita – CEO, ArcelorMittal SA

A story of rising input costs and some tough market conditions, but improved safety.

HILTON TARRANT: ArcelorMittal South Africa results for the year to December are out today. Nonkululeko Nyembezi-Heita, the chief executive of ArcelorMittal SA joins us now. Nku, headline loss of R518m versus R52m in 2011. That’s on a 3% increase in revenue to R32.3bn – really a story of rising input costs and some tough market conditions.

NKU NYEMBEZI-HEITA: Well, more the latter than the former, because we did actually have quite a few of our key commodities soften a little bit, particularly coking coal. We didn’t do so well on iron ore, because Thabazimbi Mine’s costs were up so significantly.
   But I think this was still year where the markets played the biggest role, and for a change not just steel but also very much the ferrochrome market where the update of commercial coke slumped so much. It was down 27% for the year.

HILTON TARRANT: I want to dig into one of those costs and one that all South Africans are feeling – electricity. In total your costs in 2008 were around R1bn when it comes to electricity. That’s every year. Now it’s over R2bn, heading towards the R2.5bn mark. In today’s presentation with the results, the sentence which grabbed me is “electricity is becoming an unaffordable source of energy”. Is it as dire as that?

NKU NYEMBEZI-HEITA: Well, just take the example that we closed three electrical furnaces in Vanderbijlpark last year, so rather than opting to put in de-dusting equipment, which is what we’ve been doing with all our other facilities, because of the uncompetitive nature of the trajectory of electricity costs going up we just opted to shut them down. Now this is of quite a large user.
   Think about this further downstream of us – for the small and medium-sized factories in South Africa it has simply, simply a catastrophic impact on their cost structures. So I think when you start seeing larger users beginning to take decisions like that, purely based on input costs of electricity, then you know that we’ve just gone beyond a point where this thing can be absorbed.

HILTON TARRANT: Nku, you also give a helicopter view of the industry in today’s presentation – in 20 years South African steel demand up 1.1% year compounded. What does that tell us about the markets, about supply and about demand?

NKU NYEMBEZI-HEITA: Well, it tells us that South Africa is doing something a bit different from the rest of the world. If you think, 10 or 15 years ago we were consuming more steel per capita than China; today China consumes four times what we do. And China is far more in line with the rest of the world because, as economies develop and people have more money to buy fridges and cars and what have you, and of course governments invest in infrastructure, so steel per capita use should grow. This is not happening in South Africa, so either we are not growing, we are standing still – at least in terms of infrastructure and in terms of disposable incomes of people – or it’s something else that at this point ArcelorMittal cannot quite articulate or understand. But we should be consuming a lot more steel, given our level of development today, than we were 20 years ago – and we are not.

HILTON TARRANT: Nku, some positives in the numbers: positive cash flow for ArcelorMittal in the 12 months, a sizeable turnaround in working capital contributing to that. And from a safety point of view your lost time injury frequency rate at its lowest ever. If you just look a decade ago, the figures that you publish for 2012 over seven times better.

NKU NYEMBEZI-HEITA: You know, the saying in the steel industry is that a safe plant is a well-performing plant because the two go together – operational performance as well as safety. And so presumably one licks the other, but we’ve seen our safety performance has really, really, come into its own in 2012. It hasn’t just happened overnight. We’ve been working on this for years and years and years but things do at some point start coming together. And I think I saw the operational improvement very much as part of that whole process, because as well as safety we saw a much better operational stability level this year than we’ve seen in the past three to four years.

HILTON TARRANT: Nonkululeko Nyembezi-Heita, thank you.

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